Personal umbrella insurance is additional liability insurance, designed to pay out on top of your existing auto and homeowner’s/renter’s insurance policies. For example, you may only have $300,000 in liability coverage on your car insurance. If you are hit with a claim of $1,000,000, you would be on the hook for $700,000 yourself unless you had an adequate umbrella insurance policy. Here is a diagram explaining this from MSN Money:
This was taken from a previous post of reasons why I have umbrella insurance, which included some examples from news clippings. I won’t expand too much further here.
In a recent Bogleheads post, forum member Quasimodo shared an informative CBS Marketwatch article that included several more real-life examples where umbrella insurance coverage kicked in to save the day. Read it for the actual stories, but here are a few example scenarios:
- You are an car accident with multiple people with serious injuries, and the medical bills are astronomical.
- You are in a car accident on the freeway involving a semi-truck carrying $750,000 of cargo.
- An acquaintance gets injured at your house.
- You are a chaperone on a field trip and one of the kids hurts themselves.
- You host a party, someone else brings alcohol, and someone underage gets hurt or DUIs.
- Your son or daughter borrows a friend’s car, and wrecks the car or injures someone.
The article also presents some good questions to ask about coverage details and possible exclusions, which I will need to follow-up on. Mrs. MMB and I pay about $300 a year for $2 million of umbrella insurance covering two cars and a homeowner’s policy. We find it a good value for the peace of mind it gives.
You can get a third-part insurer to be the umbrella over differing auto and/or homeowner’s insurers, as long as you have the required liability amounts underneath. I wouldn’t fall for the argument that if you don’t have significant assets – especially as compared to your current liability limits – then you don’t need umbrella insurance. If you have $100,000 and are covered for $100,000, what if you are found liable for $200,000? You’d still be completely broke – and how long did it take you to accumulate that in the first place?
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What’s a cheap umbrella insurance company?
One of the most important types of insurance anyone can have is a rider to pay off the amount you actually owe on a new car. Most of those are very inexpensive – only adding $10 or so a month to the bill. And you only need it until you’re no longer “upsidedown” on the new car.
can you recommend an umbrella insurance company?
What is the average cost of umbrella insurance?
Very prudent move on your part to have this kind of policy. I’m going to look into it.
I have one of these. I cannot say I am *certain* it is a good idea but it sure didn’t seem like a bad one.
Jonathan,
You have $2 million policy. What if you get sued and the judgement is for $3 million, wont it wipe out your net worth too ?
Do the judges and juries know about your umbrella policy and can base the judgement on policy amount+net worth ? Or is the judgement based upon your income/assets ?
Not sure average cost but mine is $140 a year for $1 million. I also have auto/homeowner’s at the same company.
On the example above, the umbrella pays $700,000 so it would have an additional $300,000 before it’s depleted? Am I reading this right. You could settle with the claimant for $1.3 million and insurance would cover everything except the $1000 deductible?
That doesn’t seem too expensive.
First, the cost is higher then you think because you have to max out your car/home insurance before getting umbrella coverage. Second, the lawyers will sue for the sum of your insurance plus your net worth. So you still can lose everything. Third, insurance companies don’t want to pay and will look for any excuse not to cover you.
@MM – The coverage amount has to be set somewhere, but I would say that each additional million you go further into the unlikely scenarios. $2m in medical bills seems much less likely than $300,000. For the most part, you are paying for the insurer’s lawyers to represent you and also for them to settle with the other party for well underneath the ceiling.
@. – You don’t have to “max” out your auto/home coverage necessarily, I have to have mine set at $250,000k. However, without umbrella coverage I still had the options of $500k and $1M. But if you only have $100k total coverage, yes you’ll have to raise it, but to me that is really too low anyway.
I don’t know about how discovery works in every state and if people can find out your insurer’s limits. But it’s pretty easy to find “rich” people to sue if that’s all you’re after, and I’m safely not in that category. 🙂
I have 2 million dollar coverage which costs less than 300 bucks a year, much more affordable than the car insurance.
Very good post. It reminds me to get myself an umbrella policy that I have been delaying for awhile.
Check with your current auto or homeowner’s insurer to see if they offer Umbrella coverage…Many companies can offer this. If you take advantage of multi-policy discounts, it will help offset the premium. It’s all about protecting your assets….
I have my home, auto and $1m umbrella through the same company. We pay $110/yr for the umbrella. Our auto limits are 250k/500k/100k. I agree with Jonathan in that I wouldn’t consider going much lower on the auto limits anyway.
I just signed up for a umbrella policy, 1 million for 207.00 a year. I just switched all my insurance to USAA….got a great price on auto, home, umbrella & motorcycle. I am SO covered. Paid off my house in Jan 2010 (thank you Dave Ramsey) and have no debt.
Jonathan,
You only took $300 cost for $2M UI. You didn’t take the added cost of raising your liability coverage on Auto andHome insurance. If you only have 100K Liablity coverage on Auto and Home, when you increase to 300K, it is going to add cost to it.
Also I heard many times, people find out about your insurance coverages and claim according to your coverage to ripe you off. I am not sure whether thats true.
Vijai
I just recently got Auto, Home and Umbrella insurance from that insurance company that promises to save me 15%.
The quote for a 1 M$ quote was 179 a year but it would also discount my auto bill by 53$ a term. So the incremental to umbrella was like 6 bucks a month. I see some comments about well you have to get a high liability, but most people dont realize it doesn’t cost that much extra to go from a 50/50 to a 300/300. Just get a quote for both and you will see.
I think its best to protect your assets, just imagine the damage you can do by hitting an expensive car that hits another one that hits another one.
I know of a case where a professor was hosting a party for his graduates, his new 2 story deck collapsed and 20 people were seriously injured. He will lose everything.
It made me quote out an umbrella policy, but my primary insurance co denied me because both my husband and I have had 1 speeding ticket in the last 3 years.
I’m not sure if all companies are this risk averse or just mine.
Another great post !
I was quoted 1M for $200/year (somebody mentioned $140 for the same amount, where did you get it??) The company will offer 10% off from car insurance.
But the same company quoted $340 for 2M (a big jump!)
Just got a quote for 2mm umbrella. $800. Covers 7 rentals and primary residence. Is that too much? Sure seems like it to me.
As an adjuster, I think people should know that most people don’t need this coverage. An umbrella should be purchased if you have many assets. If you own your own business, have land, houses, large cash reserves(100k plus) or investments(100k plus). Getting an umbella is a must. The examples given are scary but most attorney only go after the max limit on your policy if you don’t have any other assets.
Well I would have to disagree. I firmly believe that everyone should have an umbrella policy!
The more assets you have the more likely someone may look to sue you for slander ect!
But if you kill someone in an accident Then you are most likely getting sued for your assets and your future earnings!
Think a college student who has nothing, but is going to school to be a doctor! The kill a father of three in a car accident. He is the main bread winner in the family. His family certainly is going to be looking to recover his lost future income. They can wait until you have more assets and sue for your income.
Also on a more moral side, assume you are driving down the road and you are at fault in an accident. You have your best friend in the passenger seat. He dies from the accident. He has two kids who you love and wife you would most certainly want to see taken care of. You will already have to live with the guilt of his death. Would you really want to see his family struggle for the next 20 years because there farther passed away in accident you were at fault and now they have to make ends meet without his income.
Sandy L,
My old insurance company kept denying me too, even for the accident that happened 3 years ago that some truck rear ended my car at a red light. So I switched the insurance company. I pay less now with the umbrella insurance included.
Check out Amica insurance for a possibly cheaper umbrella policy. I wonder what factors are used to determine the rate quote you get.
I think this post should request for people who have filed a claim where their umbrella policy kicked in. I would love to read thier stories or experiences. That is true, we really don’t know how it all works until it happens. Maybe this will give a better insight.
I recently moved my insurance to a new carrier and increased my limits and added an umbrella policy. It was very cheap to add the $1M in coverage and by shopping around I was able to increase my coverage drastically while still lowering my costs by a couple hundred dollars. The best part was letting AAA do all the work and present me with options.
Hazzard
Two things…
1. That is cheap insurance… I was quoted over $500 for $1M in coverage from GEICO as I recall… (Who I have my auto and home through…)
2. I’ve been told you are not supposed to tell people you have umbrella insurance… It apparently can increase the likelihood people might sue you or “slip” at your place.
The first rule of having umbrella insurance is we DO NOT TALK about having umbrella insurance.
Having an umbrella is absolutely necessary if; you have assets to protect.
More important is to have an umbrella with UM/UIM (un-insured/ under-insured motorist) added as an endorsement to the umbrella. This will protect your future income along with your assets in the event you are injured by someone who has minimum coverage or no coverage.
Avg cost can be from $125 to $800 depending on the amount needed, # of people in the home, profession, # of homes you have…etc.
Depends on the insurance company, other lines with the insurance company, credit score…etc.
Does the umbrella insurance cover something happened at work? I am a Clerk at a police department. Sometimes I have to search female inmates. Does the umbrella insurance only cover the accidents caused at/by your properties (home, rental properties, vehicles)?
I was applying for an umbrella policy and was asked if I had property in a foreign country. I reported my wife’s condo in Brazil. I was told that this ownership excluded me from eligibility. Why?